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Limit Order

A limit order is an order that investors give to their broker to buy or sell an asset at a particular price level or better. For example, investors place a buy limit order to purchase an asset at a specified price or lower, while a sell limit order is filled only at the limit price or higher. 

Limit orders are used by investors and traders on a regular basis. Using a limit order prevents traders from significantly deviating from their strategy and protects them from buying high and selling low. This type of order is also often utilized to rein in the security and commodity prices. 

To give an example, say a trader decides to buy a company’s stock at £20 per share. If that stock is currently trading at £22, the trader can place a limit order and set the price at £20. While the stock’s price can then either rise or fall, the trader knows his order will be executed as soon as the price drops to £20, allowing them to purchase the stock at the desired price point.

Similarly, if the trader would then like to sell that stock at £25, he/she would set the limit order at that price level and the order will be executed as soon as the price rises to £25. 

However, please note that the order may not get executed as the security’s price may not reach the stipulated price. 

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Author: Mircea Vasiu Updated: July 8, 2022